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Big deals set the tone for a steady market in chemical M&As

Big deals set the tone for a steady market

M&A activity was robust despite political uncertainty and regulatory concerns. Following 2015’s year of the mega deal, chemical M&A remained fairly stable. That said, several mega deals initiated in 2015 and 2016 will, if completed, make 2017 a banner year for transactions. Activity was spread across the value chain with a focus on agrochemicals; private equity (PE) activity was subdued due to high valuations. Overall, KPMG research indicates that the environment for M&A activity will remain encouraging for chemical companies in 2017. optimistic about future growth in 2017.

Highlights

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Bigger deals but fewer of them

After a rocky start, 2016 saw a solid flow of deals. Chemical indices rose steadily throughout the year. Total deal value declined from USD76 billion in 2015 to USD72 billion for 2016. However, if we look at deals pending, the total amount of deals announced in 2016 is more than USD180 billion. This would mark the fourth straight year in which deal value has increased. The US and China led the M&A charge, dominating the landscape both as acquirers and targets. Specialty deal flow is stronger than commodities, and activity continues to shift toward Asia.

Mega-deals in 2016

Three landmark deals in agrochemicals, specialties and commodities have overshadowed other transactions for 2016:

The shareholders of Monsanto Co. agreed to move forward on a USD66 billion acquisition by Bayer AG. If approved, the acquisition would result in a company with a quarter of the world market for seeds and pesticides.

The merger of Dow Chemical Co. and E. I. du Pont de Nemours and Co. represents a combined market capitalization of around USD130 billion, with leading positions in agrochemicals and seeds, material sciences and specialty polyolefins used in packaging and adhesives.

China National Chemical Corp is in the process of acquiring Syngenta AG of Switzerland. The USD43 billion acquisition recently won approval from the Committee on Foreign Investment in the United States (CFIUS). The deal would be China's largest overseas acquisition to date.

Known unknowns for 2017

This year presents a number of possible disruptors for the global chemical industry.

Oil and gas prices: It’s anybody’s guess where the price of crude and natural gas will be a year from now or even six months down the road. Future developments will affect virtually the entire chemical industry, either directly or indirectly.

Trump: As a businessman, he has presented his policies as economically friendly and expansionary. He has promised to slash corporate taxes, roll back environmental regulations, and loosen restrictions on investment. On the other hand, concerns are raised about his opposition to international trade agreements and the possibility of major tariffs that might trigger trade wars.

Brexit and the EU: In parallel with the new Trump administration, Brexit and a possible realignment of the European Union will also possibly become major disruptors for the global chemical industry. This development might discourage deals across national borders within the EU.

Digitalization: Data, analytics and innovations in manufacturing, sales and customer relations will continue to encourage the acquisitions of technology companies by large chemical players.

Overall, however, factors that supported a healthy M&A market in 2016 should remain in place for 2017.